(In reply to comment #0)

It should allow the editor to see the page content while specifying a
reference.

I'm a bit confused by your title - are you saying that you expect modal items to take up less screen estate? All modal items in VE (dialogs) are the same, standard size.

I think the user needs to be able to see the page text, but the current modal window takes too much space in the screen. If it wasn't modal, the user could at least drag it to the side to see the text.

Notice that if I type some text in the window and then close it for a moment, to take a look in the text, it forgets what I typed once I open the window again.

Compare this with WikiEditor's dialog (which can be moved on the screen, and do not forget what the user typed)

(In reply to comment #3)

Compare this with WikiEditor's dialog (which can be moved on the screen, and
do not forget what the user typed)

and is smaller...

(In reply to comment #2)

I think the user needs to be able to see the page text, but the current modal
window takes too much space in the screen. If it wasn't modal, the user could
at least drag it to the side to see the text.

Hmm... It seems a dialog can be modal while still being draggable:
http://jqueryui.com/dialog/#modal-confirmation

We changed the sizes of dialogs a few months ago.